In: Accounting
QUESTION 22
Presented below is information related to Sheridan Manufacturing Company as of December 31, 2021:
Projected Benefit Obligation 1,950,000
Accumulated OCI (PSC) 860,000
Fair value of the pension plan assets 1,445,000
The pension asset/liability reported on the balance sheet at Decermber 31, 2021 is
O Pension liability of $505,000.
O Pension liability of $1,950,000.
O Pension liability of S2,810,000.
O Pension liability of $1,445,000.
The correct answer for the question is Option A - Pension liability of $505,000. This Pension liability is calculated as follows:-
Pension Liability = Projected Benefit Obligation - Fair value of the pension plan assets.
Pension Liability = $1,950,000 - $1,445,000
Pension Liability = $505,000
Based on the above calculation, the correct answer is Option A - $505,000. This amount is the underfunded projected benefit obligation. Generally, this is the amount that is shown on the Balance Sheet as a Pension Liability. This is the correct answer.
Option B is incorrect as $1,950,000 is the amount that does not consider the fair value of the pension plan assets available.
Option C is incorrect as $2,810,000 is not the correct answer per above considerations.
Option D is incorrect as $1,445,000 is the value of the pension assets.
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